Your Life Simplified

6 End-of-Year Tax & Financial Planning Strategies

November 2, 2023

As we near the end of the year, what is it that you should be doing to minimize taxes and make sure that you’ve got your financial world organized? Valerie Escobar, senior wealth advisor, and Michael MacKelvie, wealth advisor, share 6 tax and wealth planning strategies you should consider before the year wraps up.


Michael MacKelvie: Year-end planning. What is it that you should be doing to minimize taxes and make sure you got your financial world organized? That’s what we’re going to talk about today.

Each year, the tax code changes. Each year, we’re faced with new financial planning changes. So we want to make sure that, near the end of the year, we are taking the best advantage of what the current year offers as well as preparing for the new year. So, my first recommendation, Valerie… Let’s just jump right into this. Set a time to review this. Again, just because something is simple doesn’t mean that it’s easy. So, I would say the very first thing that is probably going to make sense for somebody—I don’t know how you feel about this—is just carving out 30 minutes, looking out two weeks, if that’s easiest. If the next week is crazy, looking out two weeks and saying, “This is the time slot that I am going to go through that review.” How do you feel about that?

Valerie Escobar: I love it. Yep. Set out, we got a nice little checklist for you. You can use this as your guide. So, I think that’s a great start.

Michael: Yeah. And we have a couple different savings vehicles in the health sector that have some important dates associated with them. The FSA, the HSA, the FSA being a little bit different than the HSA. And typically, you have to use those funds by year-end. So, if you want to go splurge at the dentist or maybe figure out what surgery you want to get done next, it’s up to you, but you might have until the end of the year to figure that out.

HSA, a little bit different. You can roll those monies into the next year, in which case it might make sense to contribute more to your HSA because it gets that wonderful triple tax savings. You get the tax deduction, and if you’re not taking advantage of that, might be an easy way to save some taxes for this year. But those two pieces, when it comes to the health world, again, that often it’s overlooked. Make sure to remember that, Valerie, I know beyond the health realm, there’s also some conversations, typically about Roth.

Valerie: Yes, the famous Roth. It’s always so helpful to have that tax-free growth and tax-free distributions that don’t have required minimum distributions. So putting money into a Roth is super helpful. One of the things that we will look at is during the year, if you’re in your working years doing either a backdoor Roth contribution, if you make too much money to not qualify. So I know that you have spoken some on this topic before, but there is the mega-backdoor Roth… backdoor contribution that is available if your employer has that capability for you to make some after-tax contributions.

But really, I think the Roth conversions is the big piece I wanted to focus on. If you are in a low tax year, so, let’s say that you’ve retired, you haven’t yet started Social Security, this could be a good time for you to maybe move some money out of your traditional IRA, put it into that Roth. That way, you can have as much time in that Roth to allow it to grow tax free. But this is something you want to get done by tax filing, I’m sorry, by 12/31, as that is the deadline for what tax year it will count towards.

Michael: Yeah, yeah. You’re coming up on that year-end. Again, there’s some lines in the sand that are maybe a little bit more defined when it comes to contributions, conversions, and you want to make sure you take advantage of that if you’re in a low tax bracket year for whatever reason, even if you’re in between jobs right now. So other items, just to make sure you’re considering just maxing out your qualified plans, potentially non-qualified plans if you have that availability. But, for example, a 401(k), and this is something that is sometimes kind of strange to consider at first, but you have to contribute to a 401(k) via salary deferrals. So, you can’t make a lump-sum contribution from your savings. So, one of the things I’ve advised many of my clients to do, if they haven’t maxed out their 401(k), and let’s say we’re talking in November, September, it’s close to the year-end, max fund that 401(k), literally put 100% defer your entire paycheck. If your plan doesn’t allow that, maybe 50%. You can do the math up to that maximum amount from an employee contribution.

But again, it has to be by way of salary deferral. And if you have a bunch of money just sitting in savings, if you have money in a brokerage account that you can sell and move to savings, this is a roundabout way to just push more of that money over to potentially more tax-protected vehicles, being, in this case, a 401(k) traditional or a 401(k) Roth after tax, which would then be converted potentially to a Roth. So, I would say just making sure that you’re taking advantage of those opportunities and one of the things you can do at the end of the year. I literally just spoke to somebody last night about this, just bump your contributions up to 100%, defer your last few months’ paychecks, if that makes sense for you.

Valerie: Absolutely, yes. And like you said, this is going to be dependent on having other sources of cash. So, if you’ve got it in your savings account told that works easily, but moving it from your brokerage account, this could play into a different strategy that we’re going to talk about, which is harvesting tax, either gains or losses. So again, we’re talking about someone who’s employed, and so for you, maybe harvesting losses is going to be more beneficial. So basically, let’s say you have $30,000 in capital gains for a year. You are looking at your positions as the year is closing out and you’re saying, “I actually have about $30,000 of other positions that have a loss.” One strategy that you might want to take is to sell those positions, maybe sit in cash if you really love those and you want to buy those back in 30 days to avoid a wash sale rule. Or you can say, “I have my eye on a different stock that’s pretty similar.” We’ll have the same kind of growth potential because we don’t want you to sell out and then just sit and have a loss.

So, you want to be able to continue on that growth trajectory. So harvesting losses, if you’re on the other hand in a really low tax situation, maybe you’re going to look at harvesting gains. Depending on what your income is for the year, there is an amount of capital gains that you can take that’s at 0% tax. And so you can look at it, talk to your financial advisor, your accountant, decide how much in capital gains can I take and not pay any taxes. And then, by that mean, you can reset your cost basis and just give yourself a little bit more flexibility in the future if you decide that you want to rebalance or sell and not have a big tax impact.

Michael: Yeah.And even if you’re beyond the 15%, you’ve gone from zero to 15 in the capital gains realm. Maybe you’re in a state that has a friendly capital gains rate at 0%, they maybe don’t have any state capital gains rate, and you want to take advantage of that while you’re still living there. Maybe it just makes sense to diversify away a percentage of your just overall allocation because you’ve maybe just have a singular allocation over time. It’s become overweighted in one position. So a lot of things to consider there. Obviously, trade-offs, typically associated with that being taxes, but potentially 0% depending on where you’re at.

Lumping charitable contributions, and the idea here as far as just the benefit is you get a little bit more back in taxes if you’re able to just make that contribution all in one year rather than spreading it over several. So, if you’re planning on giving, let’s just say, 10% of your paycheck or 10% of your earnings for the year, sometimes it might be worth considering lumping several years into just one year and making that contribution all in one year so that you can get a larger tax deduction, get above the limit to actually start taking advantage of that tax deduction when it comes to charitable contributions. Obviously, well, I should say obviously, if you’re giving money to charity in any way, typically it’s not with the idea of just getting taxes back, it’s not a one-for-one trade-off. You don’t get a tax credit for every dollar that you give from a charitable stance, but it’s nice to have some kickback if you’re doing it, and it does allow you, in many cases, to give more when you consider tax ramifications. Valerie, I know you wanted to touch on RMDs just real brief, too.

Valerie: Absolutely, yeah, so required minimum distributions. This is something that we… lots of rules around this, but in general, you want to make sure that you’ve taken care of that by the end of the year, so 12/31, lots of strategies around this. So well, first of all, make sure you take it, but secondly, let’s say since we’re talking about charity that you are charitably inclined and you say, “I really do want to contribute $10,000 to my charity of choice,” and it is a 501(c)(3) charity, specifically. One way that you can do it is giving the money directly from your IRA to that charity. This can help offset some of your required minimum distribution or all of it, depending on how much you have. Another thing, too, with that is that… this giving in this method is called a qualified charitable deduction. You can give… or a QCD, you can do a QCD after you turn 70 and a half.

And so, tax laws have changed recently. So now, depending on your age, you may not have to start until 73 or 75, but you can say, “I’m going to start giving from there because I was going to give anyways starting at age 72 for round numbers.” And that way, once you get to your official required minimum distribution age, it’s a lower requirement because you’ve started taking money out of that IRA earlier. And so, it’s kind of nice to be able to say, “Well, I give that money. I don’t have to pay taxes on it. And so now that tax money that I would’ve paid to the government, I’m now giving that to my charity instead.”

Another thing to note or something to note about that is if you want to give to your donor-advised fund, the QCD amount cannot go into a donor-advised fund and count as a QCD. And so, it’s just a little bit of nuance there. That’s going to have to be something that you do direct donations to your donor-advised fund, you should do from cash, or a brokerage account, or something like that. So, just make sure that you’re keeping those rules straight as well.

Michael: Yeah, good point. And I think also just last piece there, just making sure you’re understanding all your employee benefits, obviously for the current year and for the year looking forward, a lot of times your just decision as to whether or not, for example, you want to participate in the deferred compensation plan that occurs in November, and people get surprised by it, then it passes them and they say, “Well, I wish I would’ve taken advantage of that.” Not to say it always makes sense. I think deferred comp definitely brings in complexity, but this might be something that is a year-end item that has to do with future ramifications for you.

So anyways, hope you guys enjoyed this episode from Mariner. Again, my name is Michael MacKelvie, joined by Valerie Escobar. Make sure to subscribe wherever you’re listening—YouTube, Spotify, Apple, wherever you’re listening—so you don’t miss out on any more industry insights from industry professionals here at Mariner. You guys take care.

The views expressed in this podcast are for educational purposes only and do not take into account any individual personal, financial, legal or tax considerations. As such, the information contained herein is not intended to be personal, legal, investment or tax advice. Nothing herein should be relied upon as such, and there is no guarantee that any claims made will come to pass. The opinions are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information.

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